Summary
holding state of mind issues are generally inappropriate for summary judgment
Summary of this case from Akeley v. Hudson (In re Hudson)Opinion
Case No. 04-11202, Adversary Case No. 04-1142, Case No. 04-10168, Adversary Case No. 04-1135.
June 21, 2005.
MEMORANDUM OF DECISION ON ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT
The above-captioned adversary proceedings are being jointly administered for procedural purposes. Presently before the Court are summary judgment motions filed by the Plaintiff, The Bank of Kentucky, Inc. ("the Bank"). See 04-1142 at Doc. 26; 04-1135 at Doc. 21. Because genuine issues of material fact exist in both proceedings, the Bank's motions will be denied.
The Ruhes were principal stockholders of a truck dealership known as Mid-West Truck Center, Inc. ("MWTC"). MWTC obtained financing from the Bank and secured the same with a blanket security interest in, among other things, all inventory and equipment. As further security, the Ruhes executed personal guarantees. Sometime in 2002, an inventory sale was conducted and MWTC was closed. The Bank alleges that the Ruhe's debt is nondischargeable because its collateral was sold "out of trust in violation of the [Bank's] security interest."
The Bank seeks summary judgment under 11 U.S.C. § 523(a)(4) and/or (6). Both Ruhes have filed a response in opposition with a supporting affidavit.
1. Section 523(a)(4)
The Bank's 523(a)(4) claims are predicated upon embezzlement. Embezzlement, however, requires proof that the allegedly misappropriated property was owned by the plaintiff and not the debtor. See Brady v. McAllister (In re Brady), 101 F.3d 1165, 1173 (6th Cir. 1996) ("A creditor proves embezzlement by showing that he entrusted his property to the debtor[.]") (emphasis added). For purposes of § 523(a)(4), "[o]ne cannot embezzle one's own property." Belfry v. Cardozo (In re Belfry), 862 F.2d 661, 662 (8th Cir. 1988),
In the instant proceedings, there is no proof that the trucks or the proceeds from their sale were owned by the Bank. Attached to each complaint as "Exhibit B" is a copy of the first page of the security agreement between the Bank and MWTC. The first page does not reflect any interest held by the Bank other than a security interest, not an ownership interest.
The facts in these proceedings are similar to those in Chrysler First Commercial Corp. v. Nobel (In re Nobel), 179 B.R. 313 (Bankr. M.D. Fla. 1995). In Nobel, the plaintiff was a floor plan financier seeking relief for embezzlement under § 523(a)(4) on the basis that the debtor sold its collateral out of trust. After scrutinizing the parties' security agreement, the court concluded as follows:
[T]his Court is disinclined to accept the proposition that funds obtained by the sale of goods subject to a floor plan are properties of the floor plan financier unless the floor plan expressly provides for the segregation of the funds to be held in trust by the debtor. Absent an express provision that the sale proceeds are held in trust, the floor plan financier's interest is nothing more than a security interest on the vehicle covered by the floor plan and, if the agreement provides, on the proceeds obtained from the sale by the dealer.
Id. at 315.
Because the record does not reflect that the Bank possesses anything more than a security interest, summary judgment is not appropriate at this time.
The security agreement attached to the complaints reflects that the document is two pages in length. It may be that page two contains language that would create the necessary ownership interest. Because it is not part of the record, there exists a genuine issue of material fact.
2. Section 523(a)(6)
The § 523(a)(6) exception is limited to "a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." Kawaauhau v. Geiger, 118 S. Ct. 974, 977 (1998). The Sixth Circuit has elaborated on the Geiger standard as follows:
Although the Supreme Court identified a logical association between intentional torts and the requirements of § 523(a)(6), it neither expressly adopted nor quoted that portion of the Restatement discussing "substantially certain" consequences. Nonetheless, from the Court's language and analysis in Geiger, we now hold that unless "the actor desires to cause [the] consequences of his act, or believes that the consequences are substantially certain to result from it" he has not committed a "willful and malicious injury" as defined under § 523(a)(6).
Markowitz, 190 F.3d at 464 (quoting Restatement (Second) of Torts § 8A, at 15 (1964)).
In general, it is difficult to prevail on summary judgment when issues of subjective intent are involved. See Perry v. McGinnis, 209 F.3d 597, 600 (6th Cir. 2000). Based upon the nature of the action and the affidavits filed by the Ruhes, the Court believes that there are factual issues under § 523(a)(6) that are better left for trial. See Nobel, 179 B.R. at 316 ("[C]onsidering the element of intent involved in [a § 523(a)(6)] claim, this Court is satisfied that resolution of this claim by summary judgment is inappropriate.").
CONCLUSION
For the foregoing reasons, the summary judgment motions will be DENIED. An order to this effect will be entered.